U.S. dairy experts cast doubts on Canadian trade deal ending deep slump for American farmers

U.S. dairy farmers remain hopeful that a new trade deal with Canada could help lift them out of a deep slump, but some are casting doubt that it will make much of a difference in an American market flooded with milk.

The deal, announced Monday by President Donald Trump, is “more of the same,” except it hurts Canadian farmers, said Jim Goodman, a Wisconsin dairy farmer and president of the National Family Farm Coalition.

“Canadian family farms will go out of business, and Canadian dairy farmers will see their incomes fall due to increased U.S. imports. And while the slightly expanded market will offer small benefits to some U.S. farmers, it does nothing to reduce the overproduction at the heart of our dairy crisis,” Goodman said.

The new deal is called the United States-Mexico-Canada Agreement. Under the terms, still being finalized, Canada would open more of its dairy market to trade and has agreed to drop its quota and pricing system for “Class 7” milk powders — a move that could help the struggling American dairy industry as it seeks export markets.

But it opens only about 3.6 percent of Canada’s market for dairy, poultry and eggs to the U.S., and that’s not much for American farmers.

“The impacts will be minimal. Canada’s entire dairy market is smaller than that of Wisconsin,” Goodman said.

Tensions over the North American Free Trade Agreement were heightened last year when Canada raised tariffs on ultrafiltered milk used to make cheese and other dairy products.

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Exports that had grown to $102 million skidded to a halt at a time when America’s dairy industry, then in its third consecutive year of low prices, was losing money and farms.

The new pact could restore some lost sales, and it could set the stage for making trade deals with countries in the Asia Pacific region.

“The export story is probably the silver lining in the dark cloud that hangs over the dairy industry today,” said Tom Vilsack, U.S. agriculture secretary from 2009 until 2017, and a former Iowa governor.

Details are still being ironed out, but the trade deal is a positive development even if it has shortcomings, said Vilsack, now president of the U.S. Dairy Export Council, an industry trade group.

“I think it’s fair to say that it should provide stability in the dairy markets because now we know for certain that the United States is not going to get out of the trilateral relationship with Mexico and Canada,” Vilsack said.

“We know that eventually Mexico will be preserved as our number one market, and there’s incremental increased access to the Canadian market. … It’s not as much access as we had hoped for, but it’s better than what we have,” he added.

Prices remain low

Still, in the short run anyway, the deal isn’t likely to raise the price U.S. farmers receive for their milk — which in some cases has been below their cost of production.

“The amount of milk we’re going to be able to move into Canada is pretty insignificant,” Goodman said.

“The likelihood that a revised NAFTA will resolve the low prices that U.S. dairy farmers have been experiencing the last several years is fairly limited,” said Veronica Nigh, an American Farm Bureau Federation economist.

Details of the agreement are important, and a lot is still unknown.

“We’re not completely ready to say it has resolved the issues with Canada,” Nigh said.

Retaliatory tariffs are still in place from Canada and Mexico, and that’s especially affected trade with Mexico, Vilsack said.

Falling prices hurting farms

In a global market awash in dairy products, prices have skidded, and many U.S. farmers have burned through their savings and farm equity to remain in business. Thousands of farms have closed because their monthly milk check did not cover their bills and debt payments.

“The dairy hole is so deep, and people have lost so much money, it’s going to take a lot to get out of the hole,” said Zack Clark, government relations director for the National Farmers Union.

“Until there’s a solution to the global milk glut, the price won’t move much at all. I think expectations should be tempered,” Clark said.

While consumers have been eating more cheese and yogurt in recent years, keeping many farms afloat, sales of milk as a beverage have been declining for decades.

In 2017, total U.S. beverage milk sales were 48.6 billion pounds — about 5.5 billion gallons — the lowest level in at least 43 years, according to U.S. Agriculture Department data.

Whole-milk sales were down more than 50 percent from the 1970s.

Americans consume about the same number of gallons of beverages as they did years ago, but they’re drinking a lot less milk.

A flood of new beverages, including bottled water, sports drinks, bottled teas, soy and almond drinks, have taken a toll on milk sales.

The gallon milk jug was invented to feed a nation that, decades ago, was largely eating most meals at home as a family.

But now, things like breakfast cereal swimming in milk have been replaced by fast-food egg sandwiches or a bagel at work.

“Cereal accounts for almost 25 percent of the (milk) decline … and we aren’t going to be able to turn around the cereal industry,” said Paul Ziemnisky, a vice president at Dairy Management Inc., a trade group that promotes dairy products.

Dairy markets typically move in a three-year cycle, but this downturn has been more sustained.

“To put it in context, dairy farmers … nationally, have been living in a pretty unpleasant environment for three or more years now,” said Andrew Novakovic, director of land grant programs at Cornell University in Ithaca, New York.

The prices that farmers receive for their milk should improve some in coming months, industry experts say, but that’s from market forces, rather than the trade deal, which hasn’t been approved by the three countries yet and could take years to fully implement.

U.S. dairy experts say questions remain about whether Canada will find another way to dump milk on the international market, lowering prices for American farmers.

“That’s one of the reasons why we aren’t doing backwards somersaults over this deal,” said Jim Mulhern, president of the National Milk Producers Federation, a U.S. industry trade group.

“I think the most important thing in this agreement is the cap on (Canadian) exports. If the caps are effective, this problem should be stemmed,” Mulhern said.

‘Bad outcome’ for Canada

Canadian dairy farmers will be hurt because the trade deal reduces their milk supply protections, such as import quotas.

“It could ruin the livelihood of thousands of farm families in Canada,” said Mark Kastel, co-founder of The Cornucopia Institute, a Wisconsin group that monitors agricultural issues.

“The race to the bottom that’s been so injurious to family farmers in the U.S. might have just been exported to Canada,” Kastel said.

Dairy Farmers of Canada said it was disappointed in the agreement.

The trade group said it “fails to see how this deal can be good for the 220,000 Canadian families that depend on dairy for their livelihood.”

“This is a bad outcome for dairy farmers and the whole dairy sector. The government has conceded access to our domestic market to the U.S., affecting our ability to produce Canadian milk. By doing so, it is slowly bleeding Canada’s dairy sector,” the group said.

U.S. consumers probably won’t notice a difference in dairy product prices at the grocery store as a result of the trade agreement.

It will help farmers. “But I don’t see a big resurgence in prices because of it,” said Bob Wellington, an economist for Agri-Mark, a Northeast cooperative based in Andover, Massachusetts, which represents 900 farms.